Elections in broken Argentina

May 10, 2003

As Argentines get ready for the May 18 presidential runoff election, enthusiasm about the contest is as hard to find as optimism about the country's future. One indication of the widespread cynicism is that nearly 60 percent of the voters say they would never vote for former president Carlos Menem, yet a majority also expect he will be elected anyway.

In reality, recent polls indicate Menem is likely to lose to Nestor Kirchner, a governor of a remote southern province, by a 2-to-1 margin.

If that holds, it will be one bit of good news. Menem, a man with a pampas-size ego, has been accused of several ethical violations, from illegal arms sales to accepting payoffs to stifle the investigation into the bombing of a Jewish cultural center in Buenos Aires in 1994. He is not the one likely to lead Argentina to desperately needed economic and political reforms.

Kirchner hasn't been tainted by any scandal, but some of the items in his populist platform, including suggestions he might renationalize or increase regulation of some industries privatized during the 1990s, sound like precisely the wrong medicine for an economy that is barely beginning to stabilize.

"The patient is in the emergency room and they have stabilized him," said Peter Hakim, president of the Inter-American Dialogue, a Washington think tank. "But they have not begun to deal with gunshot wounds yet."

During the past 18 months, Argentina has had five presidents while its economy has contracted by approximately 10 percent. The country defaulted on $141 billion in private international loans and froze bank deposits. Unemployment has risen to about 25 percent, and 60 percent of the population survives on $2 or less per day.

Climbing out of that deep hole will take dramatic action. A sweeping win over Menem could give Kirchner the mandate to do just that--if he chooses to do so, rather than play the easier populist card. Among Argentina's many priorities, the one requiring the most urgent attention is reaching an agreement with foreign lenders on a repayment plan. Absent that, Argentina will continue to be shut out from the financial markets.

But doing so will require financial discipline by the central and provincial governments in order to generate some budget surpluses. A bit of a surplus is likely this year because of the government's decision not to adjust all government salaries automatically by the inflation rate. That averted the threat of hyperinflation and the peso has stabilized at three to one U.S. dollar.

Kirchner also must re-establish the rule of law and public faith in the commitments of the government. During the economic and political free-for-all in the past 18 months, the government unilaterally abrogated most contracts, from pensions to financial agreements. Private investment, domestic or foreign, is unlikely to flow into such chaos.

Whoever wins the election will inherit a broken country. Not only is the economy barely showing signs of life, but the electorate is enraged, distrustful and divided.

The fate of Argentina, the second largest economy in South America after Brazil, matters to the U.S. Yet, largely because of this nation's preoccupation with Iraq, terrorism and the Middle East, Latin America has vanished from the American foreign-policy screen. A free-trade agreement between the U.S. and Chile, reached late last year and yet to be ratified by the Senate, is the only notable accomplishment in the region for the president. That's not enough.

Argentina's economic wounds must be treated first by courageous domestic leadership and policies. So far, Kirchner seems poised to win by being the non-Menem. That will hardly be enough to restore Argentina's economy and the broken spirit of its people.